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Abstract

That boilerplate is pervasive is hardly surprising. In a variety of ways, standardized terms in day-to-day contracts serve an essential cost-saving function. By this measure, one might expect less frequent reliance on boilerplate in high-value contracts among sophisticated parties. Yet standard terms would appear to be no less widespread in contracts among the sophisticated. Notwithstanding their representation by able counsel, charged to craft comprehensive and detailed, but also particularized, contracts, such parties will commonly conclude agreements comprised heavily of traditional terms--contracting norms of a sort-rather than terms tailored to the distinct features of their particular bargain. Examples of seemingly suboptimal but persistent contracting norms the choice of standard contract terms over Pareto preferred tailored ones are abundant. Several scholars have highlighted the longstanding inclusion of unanimous action clauses in sovereign debt contracts, notwithstanding the widespread perception of such terms as inefficient. To similar effect, Michael Klausner and Marcel Kahan have pointed to the standard put-at-par remedy offered in event risk covenants, as well as the use of a standardized rating decline trigger, as suboptimal technologies. Bill Bratton, finally, has noted the curious absence of business covenants restricting the creation and offering of certain new classes of preferred stock.